Drewry cautions on short-term freight contacts

Friday, November 30, 2012

A briefing published by Drewry Supply Chain Advisors this month is cautioning logistics managers about buying short-term freight contracts next year as a way of saving money.
"As global container supply keeps increasing fast and box traffic slows down (or goes into decline), these logistics managers believe that the supply-demand balance and rates could well be weaker in six months’ time than they are now," Drewry notes.
But the London-based firm noted that "despite weakening demand growth, carriers have managed to force up spot pricing through a series of rate restorations and calculated capacity management. Leading the charge has been the Asia-Europe trade where spot rates rose almost four-fold in the five months to May before tapering off."
Drewry says while "buying short in a weakening market is usually an effective tactic" in the current market it could prove counter-productive.
"A short-term contractual approach using many temporary carriers does not encourage good customer service and support."
Drewry added "it is not at all certain that the market will weaken during the second half of 2013, if ocean carriers ration capacity as
they did in 2010. On the key routes, Drewry expects freight rates for calendar 2013 to be on average higher than in 2012."
It also noted tendering cargo is time-consuming and most buyers "prefer to know what the freight cost is going to be for the whole year."
As an alternative, Drewry suggests an indexed linked contract could give shipper the benefit of declining freight rates.